At a glance

• Sam Bankman-Fried gave testimony on Thursday, October 26 in an evidentiary hearing, with no jury present.
• Bankman-Fried seemed flustered under cross-examination, and prosecutors walked him into many seemingly troubling admissions.
• Judge Lewis Kaplan seems unlikely to allow defense lawyers to question Bankman-Fried in open court about advice he received from lawyers about matters such as deleting Signal chats and FTX-Alameda payment arrangements.

As with almost every aspect of the defense effort so far, Sam Bankman-Fried’s first testimony in his own criminal trial went worse than even harsh critics likely expected. 

Bankman-Fried crumbled under determined cross-examination from prosecutors, repeatedly stumbling, mumbling, avoiding questions, taking awkward pauses, contradicting himself, frequently saying he “did not recall” seemingly key details, and receiving multiple harsh reprimands from Judge Lewis Kaplan for prevaricating or dodging questions.

The sole saving grace for the former FTX CEO was that the jury wasn’t present, as his first testimony came in a subordinate evidentiary hearing that closed out proceedings on Thursday, October 26. Michael Lewis, famed author of the controversial FTX book Going Infinite, was present to see Bankman-Fried flounder.

The hearing came after the prosecution closed out its case on Thursday morning with a forensic witness from the FBI. The defense then called its first two witnesses, lawyer Krystal Rolle and forensic acountant Joseph Pimblay, to little discernible impact. 

Bankman-Fried will be the final witness in his own defense, but the defense first had to try one last time to convince Judge Kaplan to let it pursue a seemingly key element of its defense strategy: blaming FTX’s lawyers. More specifically, blaming former FTX Group top lawyer Dan Friedberg.

Kaplan had already ruled that a so-called ‘advice of counsel’ defense was unacceptable during the defense’s opening statement. But he granted the defense one last hearing to decide if it could pursue lawyer-related questions during the defendant’s testimony. Without the jury present, the hearing was effectively a condensed preview of Bankman-Fried’s testimony.

Bankman-Fried performed ably under direct questioning from his own team’s Mark Cohen, calmly discussing Friedberg and the firm Fenwick & West’s approval of things like FTX’s document retention policies, personal loans to executives, terms of service, and receipt of customer deposits via Alameda Research. Bankman-Fried would later explicitly state that he believed such lawyer-approved arrangements meant Alameda had the right to freely borrow and use FTX customer funds.

Read more: Sam Bankman-Fried lied to FTX lawyers about using customer funds

SBF was savaged by a pitbull

Cross-examination from assistant US attorney Danielle Sassoon was, unfortunately for Bankman-Fried, a very different story. Sassoon is a proverbial pitbull who methodically disassembled Bankman-Fried’s various appeals to legal authority. Sassoon, a knife-sharp questioner has emerged as one of the stars of the trial and kept up a relentless pace, repeatedly leaving Bankman-Fried flustered. More than once, Sassoon seemed to maneuver him into uncomfortable admissions.

Sassoon frequently toyed with and goaded Bankman-Fried — albeit with the bone-dry manner of a cold-blooded professional. At one point, she invited him to read through Alameda Research’s Payment Agent agreement with FTX and identify specific lines that authorized Alameda’s use of customer funds. After a lengthy search, he pointed to a clause allowing Alameda to ‘hold and transfer’ FTX assets until the exchange demanded their return. But Bankman-Fried also admitted that no lawyer had told him that this clause granted Alameda those rights.

In a lengthy exchange about Alameda Research’s notorious ‘allow negative’ designation and exemption from liquidation on FTX, Bankman-Fried seemed extremely evasive about his own knowledge and involvement. He said he had spoken to Gary Wang and Nishad Singh about implementing ‘speed bumps’ that would ‘address the risk of improper erroneous liquidations’ of Alameda accounts, but claimed not to know that Wang and Singh had responded to this request by simply making Alameda immune from liquidation.

In easily the most disastrous exchange of the day, Bankman-Fried repeatedly dodged a key but very straightforward question: whether he knew that Alameda accounts were allowed to run negative balances on FTX. Instead, he repeatedly alluded to Alameda having ‘a positive overall Net Asset Value‘ on FTX. That is, rather than answering to the negative capacity of individual Alameda accounts, Sam tried to imply that the sum of all Alameda accounts on FTX remained positive.

After Sassoon attempted again to get a clear answer on the matter, Bankman-Fried said he was “going to respond to the question I think you’re asking.” That echoed statements recounted by Michael Lewis in which Bankman-Fried outlined a communication strategy of answering the question he wished an interviewer had asked, rather than the one actually presented.

But it seems that doesn’t get you as far in the Federal court system as it does with the credulous US business media. After several attempts by Sassoon, Judge Kaplan intervened, clearly irked: “Not once did the [prosecution’s] question include the phrase ‘net asset value,’” he scolded Bankman-Fried.

“In that case,” the defendant replied, “I don’t know what you mean by negative balance.” 

Bankman-Fried further said that he “did not recall” discussing with lawyers the use of the North Dimension entity to receive FTX customer deposits via Alameda Research bank accounts. When asked whose decision it was to receive deposits through this convoluted mechanism in the first place, Bankman-Fried answered that, “I’m actually not entirely sure … I don’t recall being a part of it.”

Bankman-Fried likes ‘reasonable risk’

Sassoon also extracted from Bankman-Fried the clarification that, while his legal counsel had helped draft a general document retention policy, they had not specifically signed off on the deletion of various Signal group chats — including those where the FTX ‘inner circle’ seemed to have coordinated fraud.

Bankman-Fried also admitted to contemporary knowledge of chief lawyer Dan Friedberg’s connection to prior frauds, and admitted that Friedberg’s tolerance of taking ‘reasonable risk’ had been a factor in his hiring. Sassoon also asked Bankman-Fried about Friedberg’s apparent use of ‘illegal narcotics’ with other FTX Group employees, but Judge Kaplan struck down that question.

Sassoon seemed to test just how far Kaplan would let her go as Bankman-Fried’s first appearance wound down. The prosecutor questioned Bankman-Fried about his commitment to safeguarding customer assets.

Read more: Sam Bankman-Fried’s lawyers can’t stop making mistakes

Was this only a matter of physical and cybersecurity, she asked, or “does that also include not embezzling customer funds?”

The in-your-face question was rightly struck down by Judge Kaplan. But while her lawyerly demeanor never cracked, one could sense Sassoon’s enjoyment of the moment — almost as if she were spiking the football and doing an end-zone dance in the defense’s face.

In closing remarks, it seemed almost certain that Judge Kaplan would prohibit questioning that implied responsibility by FTX’s legal counsel. In what he called a hypothetical, Kaplan compared the argument to a bank robber who got bad legal advice on how to hide the loot.

Kaplan’s final decision will come in court on Friday, to be followed by Bankman-Fried’s first appearance to testify before a jury. The defense’s direct questioning will likely take up the bulk of the time, with more fiery cross-examination to come in the first days of next week. 

After that, perhaps on Tuesday or Wednesday, the legal teams will present closing statements. Both sides are likely to rest by the end of the week, and send the case to the jury for its decision.

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As Sam Bankman-Fried’s criminal trial gets back underway on Thursday, things feel oddly settled on the legal front. The prosecution and its array of insider witnesses have established beyond any reasonable doubt that Bankman-Fried coordinated the frenetic embezzlement and misuse of customer funds. Barring some truly dramatic revelation or supremely canny tactic by a defense that has so far shown no such capacities, Bankman-Fried will likely be found guilty by a jury of his peers within no more than a few weeks.

But the very certainty of the legal case invites a much more difficult question: what was Sam Bankman-Fried’s plan?

Bankman-Fried spent, invested, gave away, or otherwise disposed of a gargantuan portion of the funds customers had entrusted him with. While crypto market volatility helped expose that activity, what could have possibly been his goal in flinging assets into the ether with such seeming abandon? What, even in an ideal world, was the FTX endgame?

One of the clearest glimpses so far of what Bankman-Fried was thinking came in testimony from former FTX General Counsel Can Sun on October 18. Under questioning from Assistant US Attorney Danielle Sassoon, Sun recounted a conversation with Nishad Singh:

“[Nishad] said that he found out about the hole, basically that Alameda was taking FTX customer assets in late summer of ’22, so August or September of 2022. He said that he talked to — he confronted Sam directly about it, and Sam told him back then that it is what it is and there is nothing we can do about it. The only thing we can do is to grow the company and fill in the hole.”

This strikes me as the very definition of hearsay, but it was admitted in court, so I’m going to take it as an accurate representation of what Bankman-Fried said.

Read more: Sam Bankman-Fried’s lawyers can’t stop making mistakes

Risk on

And “grow the company and fill in the hole” was not just how Bankman-Fried hoped to address the fallout from his actions: it also seems to be how he rationalized them in the first place. In essence, it appears that his plan was to spend customer funds to make FTX so huge and influential that it could repay Alameda’s extensive fraudulent borrowing of customer funds, or perhaps even become ‘too big to fail.’

The fact that those funds were not his to use seems to have been absent from his moral or strategic calculations. And of course, Bankman-Fried’s seeming belief that a crypto exchange could generate infinite money speaks to his total lack of any deep understanding of crypto itself — but that’s a topic for another day.

This leverage-long, risk-on mindset seems to come largely from the tenets of utilitarianism and effective altruism — or, at least, from Bankman-Fried’s understanding of them. As Michael Lewis puts it in Going Infinite — a catastrophic failure of a book that nonetheless contains some incredibly interesting moments — “people able to calculate the expected value of complicated financial gambles were the same people drawn to the belief that they could calculate the expected value of their entire lives.” (Of course, believing this about yourself is in itself borderline sociopathic, and taking such claims for granted is where Lewis fails most dramatically.)

More specifically, Bankman-Fried seems to have come to believe that taking high-risk, high-return bets was almost always the right decision. During the trial, we’ve heard this described as an ‘expected value’ calculation, a practice that made up the core of utilitarian and effective altruism thinking as understood by the FTX squad.

Sam himself got early lessons in expected value at Jane Street, where he traded before founding Alameda. Michael Lewis recounts that interns at Jane Street were encouraged to place bets with each other constantly. Soon, as a source told him, “the interns are all addicted to gambling, and to positive expected value gambling more than anything in the world.”

At a high level, this appears to have been Bankman-Fried’s rationalization for using customer funds to buy political influence through donations, and social influence through endorsement and advertising deals with people like Tom Brady and Larry David.

While according to traditional accounting standards FTX couldn’t afford these exorbitant outlays, in Sam’s mind, the certainty of his own infallibility made using customer funds to pay for them the best possible plan, because it generated maximum ‘expected value.’ 

At least as deployed by Bankman-Fried, these calculations were often absurd on their face. One gobsmacking early example laid out by Lewis involved $4 million worth of Ripple (XRP) tokens going missing fairly soon after the creation of Alameda Research. Sam “told his fellow managers that in his estimation there was an 80% chance it would eventually turn up. Thus they should count themselves as still having 80% of it.”

Read more: Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison

This moment embodies the absurdity of expected value calculations in two ways. On the one hand, it leads to absurd ways of thinking about the world. But more to the point, what Bankman-Fried here seems to think is some sort of “rationalism” is actually nothing more than a feeling — where, after all, did that 80% number come from? Not, at least as told by Lewis, from any specific process of thought. Sam just estimated the odds.

Bankman-Fried even seems to have been aware of how absurd such arguments seemed to other people. Lewis quotes Sam saying, “The place I am strongest is the place where you have to do things other people would find shocking.” 

Shocking, in retrospect, seems to have at least in part meant ‘irresponsible and immoral.’ Basing decisions on long-term oddsmaking would strike most people as both morally and scientifically incoherent. On the one hand, it presumes that the individual making decisions — in this case, Bankman-Fried — has superior judgment to everyone else who might have something to say about the situation. Let’s take Bankman-Fried’s effective altruism at face value, just for a moment. Given that, his entire quest to make money via FTX, then donate it to ‘effective’ causes, depended on the idea that he, in his late twenties, knew what was right for the world better than all living government and civil society figures.

Immoral calculus

Moreover, in his apparent belief that normal standards of morality didn’t apply to him — a view Caroline Ellison testified to hearing him express — Bankman-Fried seems to have assumed he knew what was right for the world better than all of the major social figures who had come before him in the history of mankind. This callow, Holden Caufield-esque rejection of everything the world of adults stood for seems to have been the closest thing to a genuine ethos Bankman-Fried possessed. 

Part of the same infinite self-regard was, apparently, the belief that he would inevitably succeed in business. This seems implicit, first, in his use of customer funds in the first place. It returned in far more pathetic form in his whining insistence after FTX’s collapse that, if he had not been forced to declare bankruptcy, he could have gotten his customers all of their money back. 

Of course, these are all merely Bankman-Fried’s possible conscious thoughts. But whether he was capable of acknowledging it or not, he was also driven by the base desires that drive all humans. As insider Nishad Singh said in reference to Bankman-Fried’s insistence on buying a $36 million penthouse for his leadership team, “Sam is a fan of views.”

Read more: Bankman-Fried’s dad spotted in damning group chat during Ellison’s testimony

On a similar note, but much sadder, is FTX bankruptcy CEO John Ray III’s assessment of Sam’s motivation for spending utterly absurd sums to hire celebrity influencers. “For the first time in [Bankman-Fried’s] life,” Ray said, “everyone ignores the fact that he’s a fucking weirdo.” Or, as Lewis puts it, “Sam was buying himself some friends.”

Of course, he would never in a million years have admitted that. Instead, as Lewis himself describes, Bankman-Fried had a superficially rational argument that influencers like Tom Brady had a unique power to draw in customers to FTX.

In a nutshell, this is the Shakespearean tragedy of Sam Bankman-Fried as a person. Brought up on the ideology of ‘expected value’ and making odds on coin flips, he came to see himself as someone who always knew the odds. This made him comfortable risking other people’s money, even without their permission. He was sure he was going to win, so why not bet it all?

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At a glance

• The Defense team for Sam Bankman-Fried has repeatedly walked into hilarious mistakes.
• Judge Lewis Kaplan has constantly reprimanded Mark Cohen and Christian Everdell for wasting time.
• Is there a larger strategy behind what seems like mere ineptitude?

Sam Bankman-Fried’s white-shoe lawyers have a very hard job. They also seem to be doing it quite poorly.

Indeed, at their lowest moments, Mark Cohen and Christian Everdell are like the Laurel and Hardy of bad lawyering.

In the third week of trial, Bankman-Fried’s defense team has yet to establish any real counter-narrative to the prosecution’s case — but worse, they’ve made repeated, serious missteps that actually seemed more likely to harm SBF in the eyes of the jury than to help him.

One sterling example came on Thursday, October 12, as Cohen was cross-examining former BlockFi CEO Zac Prince about the due diligence process at the now-collapsed crypto lender. Cohen and Prince were reviewing a report from BlockFi’s risk team recommending against further lending to Alameda, in around August of 2021.

“So when an exception approval was included,” Cohen asked, “that meant the credit team doing the sort of on-the-ground work couldn’t say ‘yea’ or ‘nay’ to the loan, correct?”

“That’s one of the reasons, yes,” Prince affirmed.

“And it had to go up the chain of command.”

“Correct.”

“Ultimately to the executive committee, I believe you said,” Cohen continued. “And you were a member of that committee.”

It was just one exchange of several working to establish one thing: that Prince, in reviewing Alameda Research’s loan application, could override his own risk committee’s fears. Those included fears about things like the volatility of the FTT tokens Alameda was using as collateral.

Cohen was clearly gearing up for a bombshell revelation, a punchline that would discredit Prince and his testimony.

But that bombshell would turn out to be more of a lead balloon, its payload merely hot air.

Read more: Alameda Research used customer funds as early as 2019, Gary Wang testifies

No, this loan did not get made

The day before, on Wednesday, October 11, Prince had told the prosecution about his company’s loans to Alameda Research. Among other points, he’d also been clear that BlockFi would never have lent to Alameda if it had known about Alameda’s huge personal loans to FTX executives and its massive borrowing of FTX customer funds. It seemed clear evidence that Bankman-Fried and his inner circle had defrauded lenders.

On Thursday morning, Cohen needed to change the narrative. His questions seemed poised to nail Prince as the real culprit in BlockFi’s demise:  a CEO who overrode his own risk management department. Victim-blaming has been one of the defense’s major tactics so far. The implicit subtext is often something like “Only a complete rube would trust our client.”

Finally, after nearly an hour of lead-up, Cohen moved in for the killing blow:

“So the [risk] team is telling you and other executives, their recommendation is not to go forward … Now did in fact the loan get made?”

“This loan,” answered Prince, “No, this loan did not get made.”

If you listened closely, you could hear the ‘wah-wah’ of sad trombones on the wind.

Cohen’s big lead-up had fallen into a hole, seemingly because he had his basic facts wrong.  BlockFi did make more loans to Alameda after the rejected application, but only at higher collateralization levels, as Prince would go on to explain to Cohen.

Cohen had effectively spent almost an hour helping the prosecution rather than his client. Instead of painting Prince as a cowboy who took risks heedlessly and had only himself to blame for losing money to Alameda, he’d shown that Prince did carefully follow procedures. The only culprit left standing was the FTX inner circle who had doctored information on loan applications sent to BlockFi.

Bankman-Fried’s lawyers are hesitant and clumsy

This was just one particularly striking misstep from a defense that has made plenty in the course of the trial. They’re at a big disadvantage because of limiting rulings and witnesses rejected by Judge Lewis Kaplan (and, of course, because their client looks guilty as hell). But they’re not doing much with what they’ve been left.

When Cohen and Christian Everdell were first hired as Bankman-Fried’s defense team, that would have been nearly unthinkable. As the Wall Street Journal pointed out, they had some unsavory clients — most notably, Ghislaine Maxwell. But they were also elite: Both Cohen and Everdell are former Federal prosecutors, and Everdell is a graduate of Harvard. Cohen & Gresser, which Cohen co-founded, has a reported 80 lawyers with offices in New York, London, and Paris.

That led me to assume that these guys were the legal defense version of Harvey Keitel’s Wolf from Pulp Fiction. These two, circumstances implied, rolled in to defend the worst people for the biggest paychecks. Perhaps amoral but ruthlessly competent, forcefully defending their clients’ right to a vigorous defense while using every trick in the book to help alleged criminals walk free.

But the reality, so far, has seemed far grubbier, clumsier, and sadder than such cinematic imaginings would have it. Cohen and Everdell seemed squeamish about pushing hard on Caroline Ellison, who they were expected to tar as an irresponsible leader at Alameda. They’re hesitant, clumsy, mispronounce names, and constantly trip over technical details. Judge Lewis Kaplan has continuously fumed at the defense for spending long periods simply having witnesses re-state the answers already given to the prosecution. Kaplan has had to reprimand both Cohen and Everdell for, in effect, wasting time.

Time and again they’re rebuffed in their attempts to find daylight between their client and the, at best, catastrophic mismanagement of FTX and Alameda Research. They have frequently set up lines of questioning during cross-examination that didn’t just fizzle out but blew up spectacularly in their faces. All of that is almost certainly souring the jury against the lawyers. Even leaving aside the damning evidence on display, it may also be turning jurors against Bankman-Fried.

After three weeks in court, Cohen and Everdell seem less like shadowy super-lawyers, and more like the only even vaguely credible and competent option available to the likes of Ghislaine Maxwell and Sam Bankman-Fried.

Did Bankman-Fried buy a yacht?

Another slapstick moment came in Cohen’s opening-week cross-examination of former FTX engineer Adam Yedidia, who was close to the so-called ‘inner circle’ but not seemingly part of the conspiracy.

“Did you observe Mr. Bankman-Fried,” Cohen asked, “and how he spent his money in your day-to-day interactions with him? … He didn’t buy, for example, fancy watches, did he?”

“No,” Yedidia answered. 

“He didn’t buy a yacht, correct?

“To my knowledge, he did not buy himself a yacht.”

Cohen further went on to ask Yedidia whether Bankman-Fried wore fancy clothes or drove a fancy car. He tried to get Yedidia to specify that Bankman-Fried drove a Toyota Corolla. He showed a picture of Bankman-Fried onstage with Bill Clinton and Tony Blair, in his uniform of cargo shorts and a t-shirt.

The goal of this line of questioning was typical of the defense, in that it was superficial and flimsy. Cohen was working to imply to the jury that because he wasn’t making big personal expenditures, Bankman-Fried couldn’t be a crook. There is a further possible case to be made for his purported commitment to effective altruism, but the topic has barely come up at trial thus far.

By my count, Cohen’s rhetoric backfired in four ways.

First, Cohen caught a reprimand from Judge Kaplan for trying to push Yedidia to say Sam drove a Toyota Corolla specifically. Second, just days later Caroline Ellison would testify that Sam had returned a luxury car in favor of the Corolla, but only to help cynically burnish his effective altruist image. Third, showing a picture of Bankman-Fried on stage in shorts and a t-shirt with Bill Clinton, when Bankman-Fried is also implicated in various forms of influence-peddling, seems shortsighted.

But the fourth devastating counterpunch came when the prosecution returned for redirect, their chance to briefly rebut the defense’s cross-examination of Yedidia. Redirect came from AUSA Danielle Sassoon, whose precise, rapid-fire questioning has been a welcome contrast to Cohen and Everdell’s dithering.

“You were asked some questions on cross-examination about the defendant’s spending,” Sassoon began. “What was the FTX Arena?”

A wave of uproarious laughter ripped through reporters and other onlookers, who knew what was coming. (I was sitting in the overflow viewing room that day, where standards of behavior are a bit looser than in the courtroom proper.)

FTX Arena, of course, was the Miami Heat venue renamed for FTX in 2021. “As I recall, [the deal] was about a hundred million dollars,” said Yedidia (it was actually $135 million).

In the two weeks since, the prosecution has excelled in showing that Bankman-Fried spent FTX customer money with wild abandon, on everything from venture capital investments to hiring celebrities to planning a massive HQ building that never happened. Bankman-Fried frequently overrode his lieutenants’ fiscal worries even after he was well aware that funds were missing from the exchange. The defense has spent almost no further effort, much less made any progress, on portraying Bankman-Fried as in any way a modest spender.

Read more: Sam Bankman-Fried’s parents show signs of stress as defense flounders

You’ve tried the best, now try the rest

Bankman-Fried’s defense team also frequently struggles with basic precision. Cohen in particular seems to have a tenuous grasp on some of the terminology he’s putting to witnesses, leading to many truly head-scratching and pointless back-and-forths. In one instance, just before his big faceplant with Zac Prince, Cohen seemed to confuse a “top 10” cryptocurrency by market cap with “the top 10 percent” of cryptocurrencies. The confusion ate up several minutes of court time and almost two pages of the 180-page court transcript.

This certainly suggests that the team is simply failing because they’re ill-prepared. But given their pedigree, it’s hard to accept such a simple explanation for their decidedly underwhelming performance so far. It’s tempting to impute some three-dimensional chess to anyone with ‘Harvard’ next to their name.

For instance, maybe Cohen and Everdell are wasting time on purpose. Maybe they think boring and confusing the jury is their best bet. Another hypothetical would be that they’re intentionally antagonizing Judge Kaplan to set up grounds for an appeal — and to be fair, Kaplan does seem to be cutting them absolutely no slack. Maybe there is some other strategy here that just looks like incompetence to novice legal observers.

That would mean they’ve given up on influencing their primary audience, the jury. The jury, remember, is made up of regular folks, who neither know nor care about the niceties of legal procedure. They care about a coherent story and intuitive trust. The verdict will hinge far more on vibes than procedure, and seeing SBF’s lawyers stumble so badly can only turn them more against him.

But there is one more possible explanation, at least for some of their flubs, hinted at in the exchange with Yedidia about the Toyota Corolla. Had they known the real story of the Corolla, they would have been less likely to bring it up. 

That strongly implies they were never told the real story by Bankman-Fried, or by his parents. There is strong evidence that Sam, Barbara, and Joe are all deep in the throes of denial and delusion about what happened. They might not be giving their lawyers the facts they need to build a convincing defense. They may even be misleading their own team into embarrassing traps.

Or maybe Cohen and Everdell are simply less impressive than advertised.

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At a glance

• Now in its second week, Thursday’s court session in the criminal fraud trial of Sam Bankman-Fried was mostly taken up with the cross-examination of Caroline Ellison by Bankman-Fried’s defense team.
• After being previously barred from discussing his venture capital investment in AI startup Anthropic, Bankman-Fried’s defense team appeared aimless in its questioning of Ellison.
• Defense lawyer Mark Cohen gestured at Ellison’s trading decisions and threats to her leadership of Alameda Research, but didn’t drive home any straightforward reason for the jury to disbelieve her testimony.

The cross-examination of Caroline Ellison concluded around 3pm on Thursday, October 12, after hours of questioning by Sam Bankman-Fried’s defense team. It fell surprisingly short — Bankman-Fried’s lead lawyer Mark Cohen once again lapsed into a rote repetition of points already made by the prosecution, with only a few vague lines of attack emerging.

Ellison more than kept her composure throughout the cross-examination. It was bizarre to watch unfold, because the exact opposite had seemed so likely. Ellison is a key witness for the prosecution. This week she has detailed, accompanied by evidence, exactly how Bankman-Fried directed her to commit what she describes as crimes. Undermining Ellison’s credibility was widely considered crucial to any effort to plant seeds of reasonable doubt in the jury’s minds.

But Cohen seemed to visibly flounder in attempts to undermine the credibility of Ellison’s testimony. He came nowhere close to offering an alternate theory of what really happened to all that money: you could infer a few ideas if you’re already familiar with the case, but the jury didn’t seem to have much to sink its teeth into.

Bankman-Fried’s defense team can’t hit back at Ellison

Cohen opened by asking whether Alameda revenue and profits were held in the same infamous ‘fiat@’ bank balances as FTX customer deposits. The implied argument appeared to be that ‘not all the money (spent on random impulsive venture capital investments and lost on token gambling) was stolen.’

Cohen asked Ellison about Sam Trabucco, who served as co-CEO of Alameda for a time. This might have been meant to work towards the idea that Trabucco’s strange disappearance from the Alameda offices after late 2021 left Ellison in over her head as a solo CEO. The same can be said for Cohen introducing later moments when Sam proposed adding a second co-CEO, Ben Xie, and Ellison actually stood up for herself and told Sam no. 

The strategy here is, at best, to fundamentally confuse the issue. It does seem Alameda Research wasn’t very good at trading cryptocurrency, but that’s tangential to the core issue that they were doing it with customer funds. Given the broadly financially savvy jury, this obfuscation seems unlikely to be effective.

Read more: Sam Bankman-Fried used prostitutes in bid to unfreeze funds, says Caroline Ellison

Questions about accounting staff seemed intended to advance Cohen’s case that the FTX team was “building the plane in the air” and the only crime was being sloppy. But Ellison testified that FTX actually had one accountant on staff starting in 2021, and hired two more in 2022. That’s more accounting staff than I would have assumed myself, but it’s fuzzy to me what it accomplishes for the defense.

Another line of questioning seemed to blow up in the prosecution’s face. “Sam gave the ultimate direction” when it came to trading decisions at Alameda Research, Ellison said. Reporting about the FTX-Alameda relationship has been entered into evidence, so jurors have a sense that exactly this sort of interlocking influence is, at best, suspicious.

Ellison remains relatable and genuine in eyes of jury

In another moment of attempted misdirection, Cohen quizzed Ellison about Alameda’s use of loans from the likes of Voyager and Genesis. Cohen had Ellison specify that this sort of loan could be used for a wide variety of investments and expenses, clearly trying to muddy the distinction between contract-based commercial loans and the off-book plundering of customer deposits.

The pattern repeated itself on topics like the FTT token, whether it was smart for Alameda to invest in the Terra stablecoin (in hindsight, it wasn’t) and whether Caroline hedged enough as head of Alameda. Written self-assessments and internal management notes called Caroline’s capabilities and job performance into question.

Cohen didn’t particularly try to get under Ellison’s skin about these negative assessments, including from Bankman-Fried. He could have pressed her for details about her worries, probed her mindstate and stress levels, actually built a picture of Caroline Ellison as particularly inept or out of control. But she just doesn’t read that way on the stand, and the prosecution has managed to depict her as a bullied underling rather than a jilted lover. 

That might be why the defense wasn’t willing to really go at Caroline Ellison hammer and tongs. She seems so credible and relatable, despite her serious lack of spine when her ethics were really on the line, that a full-throated attack on her credibility could backfire by making the jury hate them.

Defense lost chance to introduce Anthropic stake

The defense also seemed occasionally underprepared on basic points. Cohen, for instance, mispronounced the name of Ryan Salame, a high-ranking FTX executive entangled with the political donations angle of the saga (it’s SAY-lem, not Sa-LAAM).

In fairness to their efforts, the defense team had been deprived of one possible — not to say particularly strong — line of questioning before even entering court this morning. Judge Kaplan ruled yesterday that the defense couldn’t discuss the recent performance of an investment in artificial intelligence startup Anthropic.

Read more: Caroline Ellison delivers the financial smut we’ve been waiting for

Kaplan quipped that it was like robbing the Federal Reserve, but arguing you did nothing wrong because you used the money to buy Powerball tickets.

“I certainly would never let in Anthropic,” Kaplan ruled with typical bluntness. “It’s unrepresentative. It’s meaningless.”

The next court session on Friday, October 13 is expected to introduce another member of Bankman-Fried’s inner circle, former FTX director of engineering Nishad Singh, to the jury. Protos will be in the courtroom hearing his testimony — expect a thorough update as usual.

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At a glance

• Caroline Ellison’s highly-anticipated testimony kicked off on Tuesday, the first day of the second week of Sam Bankman-Fried’s criminal trial.
• Ellison appeared upbeat and calm, even cracking a joke here and there. Her testimony claimed that Bankman-Fried instructed her to commit fraud.
• FTX co-founder Gary Wang concluded cross-examination, which included the defense highlighting that some directives were signed by Ellison instead of Bankman-Fried.

Caroline Ellison’s testimony in the trial of Sam Bankman-Fried got into full swing today in downtown Manhattan. Perhaps the star witness of the trial, her mini-celebrity contributed to a festival atmosphere around the courthouse after a muted first week. 

YouTube fraud-buster Coffeezilla viewed the trial from an overflow room alongside Sam-whisperer Tiffany Fong. Ellison’s testimony was so highly anticipated that several young New York crypto industry professionals had also come to watch her.

Ellison’s testimony kicked off with a timeline of her employment at Alameda Research, starting in March of 2018 when she was recruited as a trader, in what she said was her second-ever full-time job. The tensions inherent in Ellison’s on-again, off-again romance with her boss, who she testified instructed her to commit naked embezzlement on a gargantuan scale, lie near the heart of the trial. Ellison also told the court that she and Sam began sleeping together in the fall of 2018, then began a romantic relationship in the summer of 2020.

In their personal life, Sam told her about his many vast ambitions. “He said at one point he thought there was a 5% chance he would become President [of the United States] one day,” she said.

Ellison’s testimony established Bankman-Fried’s control

But today’s friendly questioning of Ellison by the prosecution was focused on ensuring that the jury knew Bankman-Fried was in the loop for, or directing, all of the core maneuvers that constituted the FTX Shuffle. 

Ellison’s testimony established that Bankman-Fried was still CEO of Alameda Research when the practice of extending Alameda a huge line of credit was initiated. That line of credit and other means, Ellison also described in detail, were how Alameda borrowed, then invested or simply spent, huge amounts of FTX customer deposits.

Broadly, Ellison’s testimony drove home that letting Alameda borrow FTX customer funds at will, and for a wide variety of uses, was taken nearly for granted within FTX. It was so habitual that at one point, in documents shown to the courtroom, FTX and Alameda senior executives considered the available FTX balances as a source of liquidity in calculating whether or not to commit money to start a $3 billion dollar FTX venture capital fund.

Read more: Sam Bankman-Fried’s $500M stake in AI startup ‘irrelevant’, prosecutors say

The venture capital fund incident also further drove home that the two companies were not really functionally or financially separate. Ellison testified that she had determined that committing such huge sums to a venture capital fund, making them unavailable for customer withdrawal, presented serious risk in the event of market headwinds. 

But Bankman-Fried overrode Ellison’s judgment and established the fund anyway – likely further cementing in the jury’s mind that he was the one really in charge. Although the money was coming from Alameda’s coffers, the fund would be called FTX Ventures, because Bankman-Fried thought the FTX brand was healthier in the public eye and he didn’t want to be associated with Alameda. However complex the mechanics under the hood, this odd behavior should intuitively sound to the jury like something fishy is going on.

Ellison’s testimony came after the conclusion of Gary Wang’s cross-examination by Christian Everdell for the defense. Everdell was sharper today than he seemed for much of last week, and the aim of his lines of questioning for Wang were generally much clearer. 

This included an attempt to deflect responsibility from Bankman-Fried by displaying to Wang chats in which Bankman-Fried was critical of Ellison’s leadership of Alameda Research. Specifically, Bankman-Fried wanted Ellison to put on a specific hedge, but she didn’t. This is a likely preview of how the defense will try to characterize Ellison when she is cross-examined: as a bad leader in over her head, and a bad risk manager who lost a lot of money for Alameda.

Ellison outlines the (financial) polycule

During Ellison’s testimony, observers got to witness arcane (but occasionally juicy) financial smut. Ellison’s retelling of one of the earliest, truly huge deployments of customer deposits was particularly of note.

In the early summer of 2021, Ellison said Sam told her he wanted to buy back $2 billion in FTX equity from Binance. Ellison testified that she believed, and said at the time, that there wasn’t enough money to do that – but that Sam thought it was important. So $1 billion in customer balances were loaned to Alameda to cover the shortfall.

Ellison said it was “the first time I can recall an amount that large.”

Ellison’s testimony took a turn for the boring, as prosecutors and the witness reviewed a seemingly endless series of spreadsheets, created by the twentysomething executive team on the fly as their crisis deepened. 

These spreadsheets were drawn up between late 2021 and mid-2022 to answer a fairly critical question: whether or not to repay Alameda’s various debtors. To answer this question, the team had to answer what should have been a simple question: how much money Alameda Research had.

These were amateurish, hilarious spreadsheets, echoing the infamous spreadsheet shared by Bankman-Fried himself soon after the collapse of FTX. It seems likely that no accountants are seriously implicated in the FTX scandal, because there have been absolutely none in sight – it’s all just 27-year-olds writing numbers on virtual napkins.

Read more: Sam Bankman-Fried’s parents show signs of stress as defense flounders

There were broad estimates and frequent inconsistencies. Related documents intended to forecast risks used Effective Altruism-tinged language to calculate the “expected values” of various decisions under various scenarios. What mattered most, though, was that the documents showed Bankman-Fried himself to have been aware of the increasingly huge hole that was effectively being hidden off FTX’s balance sheet via Alameda.

The prosecution also had Ellison walk the jury through the concept of an “illiquid asset,” specifically focused on the example of the FTT token created by Bankman-Fried and FTX. Ellison’s testimony helped establish that these tokens had been essentially gifted to Alameda at their creation, that they were thinly traded, and that selling them directly into the market would have driven their price to something close to zero. This was important to establish the risk, if not fraud, inherent in using FTT as loan collateral, particularly if customers ever decided to take their money out.

This stretch of testimony was a good example of the prosecution’s knack for getting a rough concept across in its broad outlines without getting hung up on details. As one courthouse veteran sagely intoned to me today, it’s a marathon, not a sprint, and the prosecution is taking its time to imprint details into the jury’s minds, and be clear about how facts relate to one another.

Wang’s done

Though Ellison was the headliner, the day began with the conclusion of the cross-examination of FTX co-founder Gary Wang.

Wang’s testimony included one of the funniest exchanges of the day, at least for real financial fraud geeks: 

“Are you aware of the difference between solvency and liquidity?” Everdell asked Wang.

“Now I am,” replied Wang, sending a wave of laughter through the journalist-packed overflow viewing room.

Everdell also asked a series of questions about the infamous loans made to FTX executives, then funneled into various investments and expenditures. Everdell worked to establish that FTX lawyers, including Dan Friedberg, were the agents who brought the promissory notes to Wang. 

Read more: Who’s Gary Wang, the co-founder of FTX testifying against Sam Bankman-Fried?

This could serve two purposes for the jury: First, it insulated Bankman-Fried from direct personal involvement with one leg of the alleged fraudulent scheme. Second, it laid out a small portion of an “advice of counsel” defense by implying Friedberg and other lawyers gave incompetent legal guidance.

In reviewing the loan documents, Everdell also displayed one that had clearly been signed by Ellison – not, that is, by Bankman-Fried.

There wasn’t much more of note, in the grand scheme of things. Again Everdell hammered at length at details surrounding Wang’s testimony and cooperation agreement. Call me crazy, but I’m very skeptical that jurors are going to look at Wang and draw the conclusion Everdell is inviting: That this quiet Google engineer is in fact a corrupt criminal mastermind now entangled in a grand frame-up of Bankman-Fried in cahoots with the Department of Justice and the Federal Bureau of Investigation. That dog don’t hunt.

Up next: The droning horror of malformed Excel spreadsheets

The more salacious and fraught parts of Ellison’s testimony are likely to be the focus for the defense, who won’t be cross-examining her until tomorrow afternoon at the earliest. They, the trial so far has suggested, may try to focus on her real or perceived weaknesses as a trader or leader as part of an attempt to shift blame away from Bankman-Fried.

All in all, Tuesday October 10 was likely a preview of the marching doom that awaits us all for the next five weeks: interminable assaults by spreadsheet, the droning repetition of numbers attached to account names that might as well be floating through outer space as a computer server in the Caribbean. An unspooling litany of dollars and debits, chanted by affectless gnomes like the tech-priests of a howling nightmare future.

All that accumulated minutiae is, it must be said, necessary to really drill the testified facts into the juror’s heads. It’s complicated stuff, and the prosecution is being methodical. It’s a double-edged sword, though: No fewer than two jurors have been seen falling asleep in court, one for long, repetitive stretches. She’s hidden from the viewing area behind a monitor, and for whatever reason it seems the judge hasn’t really noticed her dreamland excursions yet either.

Today, ever so briefly, I too began to feel the weight of my eyelids. We were somewhere around the fourth spreadsheet containing entries that might as well have been algebra conducted in heiroglyphics. Just for a moment, before my journalistic integrity kicked back in, in the comfortable leatherette armchair paid for by my very own US tax dollars, I let my eyes drift shut.

But after that brief rundown, the balance of Ellison’s testimony for the day was much drier, largely focused on transactions and balance sheets. 

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At a glance

• Gary Wang described Alameda Research using the in-house FTT token as collateral for loans of FTX customer funds since nearly the beginning of FTX’s operations in 2019.
• Gary Wang descibed FTX granting Alameda Research its special privileges within months of the founding of FTX. Alameda’s accounts were running a negative balance as early as late 2019.
• Eventually, Alameda’s line of credit at FTX was set at $65 billion dollars, effectively giving them free access to all customer funds on the exchange.
• Caroline Ellison is expected to testify next Tuesday when the trial resumes.

The first week of Sam Bankman-Fried’s trial concluded with bombshell testimony from FTX co-founder and CTO Gary Wang, who said that the crypto exchange gave Alameda Research special access to borrow customer funds as early as late 2019 — just months after the founding of the exchange.

Department of Justice prosecutors highlighted the special privileges that Alameda Research had on FTX, which allegedly allowed the theft of $8 billion in customer deposits. Above all, this included the ability for many of Alameda’s accounts on FTX to run negative balances, and their immunity from liquidation on margin trades.

Wang testified that Alameda was not treated the same as other customers who traded on the FTX platform, including competing market-makers. This was later put in contrast with a July 31, 2019 post from Sam Bankman-Fried on X (formerly Twitter), explicitly claiming that Alameda’s “account is just like everyone else’s.”

That post wasn’t just contradicted by general practice at FTX, but by very specific circumstance. The same day — July 31, 2019, just a few months after FTX’s initial launch — Wang had implemented and activated special privileges for Alameda, in what was something like Sam Bankman-Fried’s original sin.

Sam Bankman-Fried asked Gary Wang for Alameda’s special privileges

Alameda’s privileges included a feature in FTX’s code known as “Allow Negative.” It did what it sounds like: let specific customers’ account balances go below zero. Wang testified that the feature was only ever activated for accounts associated with Alameda Research, and that it was never turned off until the two firms’ collapse. 

“Allow Negative” was in effect a back door in FTX’s code that allowed Alameda Research to extract $8 billion worth of customer funds from the exchange.

Bankman-Fried asked for this feature initially, according to Wang, because it was necessary for Alameda’s functions as a market maker, including its ability to redeem stablecoins and fund certain operations for the FTT token created by FTX. The defense, in its cross-examination of Wang, would later take pains to characterize these as legitimate reasons for Alameda’s unique privilege to effectively use customer funds at will.

Read more: Why Michael Lewis got Sam Bankman-Fried so wrong

But however legitimate Bankman-Fried’s initial rationale for the request, Alameda Research almost immediately began leveraging the “Allow Negative” privilege to, as Wang characterized it very simply, withdraw more money from FTX than their balance on the exchange. This included money that was transferred to other exchanges for trading purposes.

Under questioning from prosecutors, Wang spelled out that in effect, this meant that Alameda was making use of “money belonging to other customers of FTX.”

Alameda’s borrowing cap set to a ridiculous $65 billion

Wang also detailed the timeline by which Alameda’s negative balance was allowed to grow. Initially, Wang described Sam setting a notional limit on Alameda’s negative balance of no more than FTX’s own trading profits. But this lasted only months.

Wang said that at the “end of 2019 or early 2020” he calculated the balance in Alameda’s account and found that “it was negative by more than what FTX’s [cumulative] trading revenue was at the time.”

When he brought this discovery to Sam Bankman-Fried, Bankman-Fried asked if he had included the market value of Alameda’s holdings of the FTT token in the calculation. Wang said he had not, and adding them to the calculation made the deficit smaller. 

But FTT had been created by Bankman-Fried and Wang as a proxy for FTX equity, and distributed to Alameda at creation. This makes the loans somewhat akin to the related-party transactions that allowed Enron to hide huge debts in off-balance sheet partnerships.

Even after this allowance, Alameda seemingly continued to lose money at a staggering scale. Wang described Bankman-Fried asking him to increase Alameda’s line of credit again and again: “a few million, a few hundred million, then a billion.” 

That billion-dollar line of credit, Wang later said, was meant to be a number so absurdly large that it would never have to be changed again. But by late 2021, Wang says Alameda’s total debt to FTX customers had increased to $3 billion. Wang and Bankman-Fried eventually set Alameda’s borrowing cap at a truly absurd number: $65 billion dollars.

Read more: Sam Bankman-Fried’s college roommate testifies against him

Again and again, Wang detailed how Bankman-Fried had personally instructed himself or others in the commission of their confessed crimes. “[Sam] told me several times to make sure that Alameda’s account is never liquidated on FTX,” Wang summed it up at one point. 

Wang also described a series of budget meetings between himself, Sam Bankman-Fried, Nishad Singh, and Caroline Ellison, who as a group seemed solely responsible for tracking and reconciling roughly 20 Alameda accounts that had borrowed billions of dollars worth of FTX user funds.

In Wang’s telling, no accountant of any sort was present in these meetings, or played any role in keeping track of FTX user funds owed by Alameda.

Defense continues weak strategy

Wang also confirmed to prosecutors that he had pled guilty to multiple fraud counts, and that his cooperation and testimony might influence his eventual sentence. The defense attempted to use this to undermine Wang’s testimony, though not terribly effectively.

Sam Bankman-Fried’s attorneys were generally on the ropes again today. Like yesterday, defense lawyer Christian Everdell was reprimanded multiple times for repetition when he began Wang’s cross-examination at the end of the day. Judge Kaplan even accused him of simply killing time as the clock ticked towards the 2pm ET early dismissal, and Everdell seemed perfectly happy to clock out eight minutes early instead, so court adjourned at 1:52 with Wang’s cross-examination still in progress.

BlockFi CEO Zac Prince was expected to testify today, but Wang’s testimony ran longer than expected. That appears to have led to a shakeup in the expected order of witnesses: former Alameda Research co-CEO Caroline Ellison is now expected to testify on Tuesday.

Ellison’s past romantic entanglements with Bankman-Fried, and the defense’s apparent strategy of hanging Alameda’s failures on Ellison, mean it will be closely watched.

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At a glance

• Under a plea deal, FTX co-founder Gary Wang told the jury he was a participant in financial crimes at the direction of Bankman-Fried, and detailed some of those crimes.
• Witness testimony established for the jury that Bankman-Fried knew of FTX’s financial woes while lying about them to the public and investors. 
• Judge Lewis Kaplan excoriated Mark Cohen’s team for time-wasting and repetitive questioning, which seemed to accomplish little. The defense’s main goal seems to be to discredit the prosecution’s witnesses, but it’s doing that poorly.
• During the defense’s cross-examination, Barbara Fried appeared distressed, grinding her balled fists into her eyes. The rough state of the defense may be obvious to even Bankman-Fried’s closest allies.

Gary Wang, co-founder of FTX and Alameda Research, took the stand against his former business partner Sam Bankman-Fried on Thursday, October 5 — the first full day of witness testimony in the criminal trial of the fallen crypto wonder boy. 

In perhaps his most damning testimony, Wang said that he agreed to receive huge personal loans from the company under pressure. He also said he never actually saw the money, driving home a broader pattern of financial chicanery at the two companies.

“Did it ever go in your bank account?” prosecutors asked Wang of the loaned money, in the final exchange of the day.

“No,” answered Bankman-Fried’s formerly enigmatic co-founder.

Gary Wang’s testimony capped off a packed day. Former FTX developer Adam Yedidia’s testimony concluded, with Yedidia recounting a June 2022 conversation in which Bankman-Fried showed clear knowledge of FTX’s financial problems. Coupled with a number of tweets from Bankman-Fried that sought to reassure the public that everything was fine at FTX, this appeared to establish the facts for the charge of wire fraud against him.

Bankman-Fried himself has been gnomic during the trial, seemingly preoccupied with documents on his laptop. But as Wang’s testimony began, Bankman-Fried appeared for the first time to be paying close attention to a witness.

Wang was subdued and gave short, focused answers. He detailed his role in creating “special privileges” for Alameda Research on the FTX platform, which allowed the firm to “withdraw unlimited funds” from the exchange, and to place orders faster than other market-makers. That meant Alameda could easily “front-run” not just competitors, but FTX customers, effectively using a cheat code to steal from them on a moment-by-moment basis. 

Alameda’s line of credit on FTX, Wang said, was $65 billion dollars. That’s several orders of magnitude higher than the “single to double-digit millions” that Wang described as normal for market makers on FTX. It’s also several times higher than the $8 billion in customer deposits that went missing.

Wang also described Bankman-Fried directing him to implement these features.

Bankman-Fried: “We’re Not Bulletproof”

Earlier in the day, former FTX engineer Adam Yedidia finished his testimony by detailing the timeline of concerns about FTX’s financial condition. Yedidia wore an ill-fitting suit with a loose tie and crooked collar, the very image of a socially awkward computer developer.

Yedidia recounted being assigned to automate the process for customers depositing funds, and in the process became aware that Alameda Research had borrowed $8 billion dollars of FTX customer funds. Yedidia described expressing those concerns to Bankman-Fried after a June 2022 paddle tennis game at the Albany resort where FTX and Alameda were based.

Bankman-Fried replied that while FTX had been “bulletproof” in 2021, “we’re not bulletproof this year [2022].” Yedidia recounted Sam’s estimate that FTX would be “bulletproof” again in “six months to three years.”

The clear takeaway was that Bankman-Fried was aware of serious financial problems at FTX as early as June of 2022. Earlier evidence had included tweets in which Bankman-Fried was still reassuring customers that FTX was “fine” as late as November of 2022. These two sets of facts seem to clearly establish evidence of fraud.

The defense’s attempts to undermine Yedidia’s testimony were, in a word, feeble.

“Would you say no crypto company was bulletproof at this time?,” the defense counsel asked Yedidia. This seemingly reflects a larger defense strategy to confuse the details of FTX’s operation with “crypto” writ large.

But prosecutors objected to the nature of the question, which was stricken from proceedings. The defense faced dozens of these objections as it asked witnesses to comment on matters beyond the scope of their testimony. Judge Kaplan sided with the prosecution again and again, leaving the defense visibly flummoxed.

Eventually, Kaplan also called a sidebar and seemed to sharply reprimand the defense for the repetitive nature of some of its questioning. In each of its cross-examinations so far, the defense has spent the majority of its time simply asking witnesses to repeat facts already established in questioning by the prosecution.

The defense also seemed to attempt to discredit Yedidia’s testimony by asking multiple questions about the immunity agreement under which he was testifying. But Yedidia, unlike Gary Wang, resigned from FTX after he became aware of Alameda spending customer deposits, and has not been charged with a crime, leaving the line of attack unconvincing.

Bankman-Fried’s parents show the strain

The cross-examination of Yedidia by the defense also saw one of the first moments of courtroom melodrama. On multiple occasions during the testimony, Barbara Fried could be seen removing her glasses, bowing her head, and grinding her fists into her eyes for minutes on end — possibly to conceal or suppress tears. Joseph Bankman, Sam’s father, also slumped in seeming frustration.

But the true depth of the defense’s missteps wasn’t clear until prosecutors returned for “redirect,” a third round of questioning for Yedidia. The defense had asked Yedidia about Bankman-Fried’s personal spending habits, seeming to imply that not buying nice clothes or a flashy car indicated he was an honest actor.

But prosecutors asked Yedidia one simple follow-up question about spending: “Have you heard of FTX Arena?” 

The question triggered waves of laughter in the courtroom, and Yedidia detailed the profligate $100 million spent to acquire naming rights to the former Miami Heat arena.

Yedidia’s testimony concluded with a personal question. From living in a $35 million penthouse in the Bahamas, Yedidia since leaving FTX has been working as a high school math teacher. While it’s a moral upgrade, that highlights just how dramatically involvement in FTX impacted even those players not charged with complicity in Bankman-Fried’s alleged crimes.

Read more: Why Michael Lewis got Sam Bankman-Fried so wrong

Investor fraud

Between Yedidia and Wang, we also heard testimony from Matt Huang, co-founder of the crypto-focused venture capital fund Paradigm. Like the rest of the prosecution’s witnesses, Huang was subdued and seemed credible, taking a measured tone and giving specific and concise answers.

Huang established that facts seemingly concealed from Paradigm would have impacted their decision to invest nearly $300 million in the platform. Specifically, Huang testified that Paradigm would have been less likely to invest had it known that Alameda Research had a special exemption from FTX’s “liquidation engine,” and that Alameda was using customer funds as investment capital.

“Our general understanding was that the exchange would take customer deposits and hold on to them,” Huang testified. Of the crypto industry more generally, he later said, “It’s generally understood that customer deposits are sacred.”

Huang’s testimony was the first to speak to charges of securities fraud against Bankman-Fried, based on the misrepresentation of FTX’s business to capital investors.

Asked about the current value of Paradigm’s $278 million investment in FTX, Huang was blunt:

“We marked it to zero.”

Friday’s agenda

Friday’s court session will conclude early, at 2pm Eastern, to accommodate a juror’s travel plans. That may be largely taken up with concluding Wang’s testimony. 

Prosecutors indicated that their next witness is Zac Prince, CEO of now-bankrupt crypto lender BlockFi.

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From charges to testimony to strategy, here’s everything you need to know to follow the biggest fraud trial of the decade.

This morning, Tuesday October 2, in downtown Manhattan, Sam Bankman-Fried’s criminal trial for a litany of alleged financial crimes will begin. 

Bankman-Fried stands accused of effectively stealing roughly $8 billion dollars worth of cryptocurrency and other funds belonging to large and small speculators worldwide. His methods were a mix of complex related-party accounting, uncanny media magnetism, and simply giving money to his friends. If convicted, Bankman-Fried would be by many measures the biggest financial fraudster since Bernie Madoff.

Here’s how Sam Bankman-Fried’s alleged crimes, as well as some pretty wild stuff adjacent to the crimes, will be presented to a jury.

Read more: SBF leaked diaries to harass Caroline Ellison and derail trial, lawsuit claims

The courtroom

The trial is scheduled to last six weeks, with court in session on average four days a week. The most notable thing about the SDNY courthouse proceedings of the Bankman-Fried trial is that no cameras will be allowed in the courtroom. For the nuance of events, you’ll be relying on a mix of sketch artists and in-person reporters. Like me.

Bankman-Fried will be coming to court from jail, where he was remanded last month by Judge Lewis Kaplan. He had been enjoying the pool at his parents’ home near Stanford University, until he leaked portions of former Alameda Research CEO Caroline Ellison’s diary to New York Times reporters. An article based on that leak was published on July 20, and on August 11 Judge Kaplan ruled that it amounted to attempted witness tampering and ordered Bankman-Fried back to jail.

One interesting question that will be answered early in the trial is how Bankman-Fried has been coping with conditions at the Metropolitan Detention Center where he is being held. Bankman-Fried may not have much heart for lockup. After his initial arrest in the Bahamas last December, he initially seemed poised to fight extradition to the US. But he reversed course after a matter of days, seemingly to escape conditions in Bahamian jail.

Bankman-Fried will be allowed to wear a suit to the trial, rather than his prison jumpsuit. This is generally helpful in creating a positive impression on a jury, though Bankman-Fried has rarely appeared comfortable in a suit, and it might simply highlight his strange adult-child demeanor.

He’s also been given permission to use a laptop to take notes during the trial, but it will be ‘air-gapped,’ with no access to the internet. It may have been the only way to prevent the former wunderkind from playing League of Legends during his own trial.

The judge

Judge Lewis Kaplan is a 78-year-old Harvard Law School graduate, appointed to the bench by President Bill Clinton. 

Kaplan has seemed stern in an array of rulings and statements so far. When revoking Bankman-Fried’s bail in August. In his ruling, Kaplan said that Bankman-Fried’s behavior included apparent attempts to get FTX’s lead lawyer “to get together with Bankman-Fried” to make sure their stories “are on the same page.” This said Kaplan, “suggests to me that maybe he has committed or attempted to commit a federal felony while on release.”

More recently, in a September 28 proceeding, Kaplan denied Bankman-Fried’s request to be released from jail during the trial. Kaplan stated that he considered Bankman-Fried a flight risk, given that he could face a “very long sentence” if convicted.

Those statements don’t indicate that Kaplan is biased against Bankman-Fried, but it’s safe to say he isn’t biased in his favor either. This is significant given the efforts by Bankman-Fried and allies to paint him as an innocent bumbler rather than a calculating criminal. Kaplan doesn’t appear to have been as seduced by Bankman-Fried’s mythos as many others were.

Read more: Opinion: We need to talk about that New Yorker Sam Bankman-Fried article

The jury

The first day at least will be taken up with jury selection, so big moments like opening statements won’t come until Wednesday at the earliest.

Jury selection could be difficult and even contentious, however. The defense has to deal with a huge amount of almost uniformly negative coverage of Bankman-Fried in the media, and may have to sift through a lot of jurors to find 12 who haven’t already made up their minds about him to some extent. The depth of that challenge was on display in the defense’s proposed jury questions, some of which seemed designed to screen out, for instance, jurors who were familiar with the effective altruism movement.

Then, just three days ago, the defense challenged the Justice Departments’ own proposed jury criteria, claiming included language that would prejudice potential jurors by implying Bankman-Fried’s guilt.

The witnesses

By far the most scintillating part of the trial is expected to be testimony from Bankman-Fried’s former colleagues, friends, and in one case, lover. 

Caroline Ellison, former Alameda CEO and Bankman-Fried’s on-off girlfriend, was among former associates who accepted plea deals, agreeing to testify against their former boss in exchange for shorter sentences. Ellison is expected to testify that she engaged in fraud, including concealing personal loans to executives, on Bankman-Fried’s orders.

Also expected to take the stand is Nishad Singh, former FTX director of engineering, who played a role in Bankman-Fried’s alleged scheme of political ‘straw donors.’ Singh may also testify to being aware that FTX was misusing customer funds.

Gary Wang, a co-founder of both Alameda Research and FTX, is described by CoinDesk as both “mysterious,” and a close confidant of Bankman-Fried. The two met in high school math camp and were roommates at MIT. Wang is a former Google staffer and also helped oversee FTX’s charitable efforts, guided by the ethos of effective altruism.

Other major FTX figures won’t testify, including two who have already pled guilty: former FTX digital markets CEO Ryan Salame and Dan Friedberg, who held various top legal roles.

Nor will the final major FTX figure who hasn’t been charged, Sam Trabucco. Trabucco was co-CEO of Alameda Research for a time with Caroline Ellison but left the firm before its collapse and the revelations of fraud. He set sail on a yacht paid for by FTX, and his current location seems to be unknown.

Bankman-Fried’s defense team is not nearly so blessed with witnesses. In a particularly striking example of Kaplan’s seeming skepticism toward the Bankman-Fried team, the judge rejected all of Bankman-Fried’s proposed defense witnesses in a September 21 ruling. Kaplan agreed with Department of Justice arguments that the proposed testimony from those witnesses was vague, legally inappropriate, or off-topic.

That they were so hard up for favorable and legitimate witnesses doesn’t seem to bode well for the defense, either on substance or strategy. Bankman-Fried’s team, however, will have the opportunity to request two of its proposed witnesses to give testimony rebutting government witnesses.

Read more: Crypto Twitter thinks it knows what SBF was doing at DoJ offices

The defense

In addition to its trouble with witnesses, there are signs that the defense’s broader argument for letting Bankman-Fried go rests on shaky ground. 

In pretrial filings, the defense has indicated most clearly that it plans to pursue, at least in part, an ‘advice of counsel’ defense. This would essentially argue that FTX’s lawyers, the firm Fenwick & West, told Bankman-Fried that it was perfectly fine to do things like loan himself $2 billion of customer money.

That seems like fairly thin gruel, and its limitations are deeper than being unconvincing. Judge Kaplan has ruled that Bankman-Fried’s defense team can’t blame the lawyers in their opening statement. Kaplan ruled that the claim, presented without detail, could confuse a jury.

Recent revelations do present a more compelling possible line of defense. Communication records presented in a recent filing by the FTX estate include strong evidence that Bankman-Fried’s own parents not only guided his actions but seemed occasionally to encourage his excesses. This included both Barbara Fried seeming to advise the use of straw donors, and Joseph Bankman pressuring his own son for an exorbitant $1 million annual salary. 

It seems that instead of that raise, Bankman-Fried’s parents received a carefully structured $10 million gift, apparently out of commingled accounts including customer funds. However, this same gift may also discourage any attempt by the defense to throw the parents under the bus: that $10 million gift is reportedly funding the defense team.

The sentence

Bankman-Fried faces seven specific charges, including variations on wire fraud, securities fraud, and conspiracy to commit those crimes. 

Even if convicted on all counts, he faces a potential total of 115 years in prison. But that number is almost entirely theoretical. In part, that’s because sentences for similar offenses would likely be served concurrently rather than successively, according to lawyers who spoke to CoinDesk.

The upshot is that even in a worst-case verdict, Bankman-Fried is more likely to be sentenced to something between 10 and 20 years in prison. For comparison, Elizabeth Holmes of Theranos infamy was recently sentenced to just over 11 years – though Theranos’ victims included largely very wealthy individual investors, so Bankman-Fried may be viewed more harshly by both judge and jury.

The future

However, even a 20-year sentence for fraud might not be the end of Bankman-Fried’s jeopardy. Five other charges, including allegations that he bribed a foreign official and broke US campaign finance laws, were previously dropped from the trial. Partly, that was because of procedural issues with Bankman-Fried’s extradition from the Bahamas.

But in July, the New York Times reported that prosecutors intended to mount a second trial on those five dropped charges in March. It looks like we could be doing this all over again in a few months.

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